Luxury consumer behavior in Mainland

China: What exists behind the facade of

new wealth?

By Pierre Xiao LU
China recently became the worlds second largest market for luxury goods with an annual
increase of more than 30% in 2010, even surpassing Japan. Further estimates predict that
China will become the largest upscale product and consumer goods market in the world. How
does a country with an average GDP per capita of $3,800 USD, and classified behind 105 in the
world ranking possess such a strong propensity for consuming luxury goods and products?
Specifically, how does one make sense of Mainland Chinese luxury buyers and their respective
consumer behavior? This article answers these strategic questions for foreign companies and
marketers who are interested in the luxury industry in China, and for those who want to develop
a greater understanding of one of the worlds largest market and its 1.3 billion consumers.
At the core of this paper is an explanation of Mainland Chinas 21st century value
system that can only have been shaped from the countrys rich history.
At the core of this paper is an explanation of Mainland Chinas 21st century value system that
can only have been shaped from the countrys rich history. Answering how China has become
the buoyant socialist state economy it is today, is to shed light onto the countrys various
economic, social, cultural and psychological histories.
The history of luxury consumption in China is one of the countrys oldest. It remains deeply
rooted into Chinas cultural and sociological landscape and has subsequently influenced other
Asian countries such as Japan, Korea, Vietnam, Thailand, Malaysia and Singapore. The
contemporary Chinese antique market and auction houses offer a telling explanation of how
luxury is consumed in China. During the economic downtown, collections of Chinese antiquities
were sold at Christies auction house for far more than their estimated value. In 2009, a 12th-
century B.C. bronze vessel from the Western Zhou Dynasty sold for over 14 times its estimated
value. These antique collectors are, in large part, Chinese or Asian. Collecting an expensive,
storied antique is viewed in a similar vein to purchasing a luxury good. To own an artifact at
home was tantamount in grandeur to that displayed by museums around the world that also
housed ancient Chinese art collections. In sharp contrast, during Chinas Cultural Revolution
from 1966 to 1976, tradition and Chinese cultural heritage was viewed negatively as something
boring, worthless, and divisive. History and heritage were destroyed in favor of new equalizing
ideology.
The Cultural Revolution created a cultural void, and those affected would go on to be known as
the lost generation. Currently in their 50s, some members of the lost generation have attained
new wealth. They partake in the purchasing of luxury goods, and often lack subtlety. They are
ostentatious and inherently possess a skewed view of what is traditional or socially accepted,
subsequently explaining for very extravagant behavior. A few examples include the rebuilding of
the Chateau de Maison Laffitte of Paris in a suburb of Beijing, or one wealthy mans endeavors
to build an exact replica of the U.S. Presidents White House in a rural area of Anhui province.
The underlying theme is the Mainland Chinese desire to mimic emblems of power from Western
culture.
Today, the Mainland Chinese consumers 21st century value system is comprised of
three salient parts: the traditional Chinese value system persists, the socialist Chinese
value system (dominant), and the Western value system which is often regarded like a
trend.
As the West represents advanced technology, super powers and modern values, the majority of
Mainland Chinese seek to pursue these values the best they can. Therefore the pursuit of
Western values can be said to have a strong influence on the Chinese consumer value system.

Today, the Mainland Chinese consumers 21st century value system is comprised of three
salient parts: the traditional Chinese value system persists, the socialist Chinese value system
(dominant), and the Western value system which is often regarded like a trend. The updated
Chinese socialist value system of Dengs reform and opening policy brings modernity, wealth,
achievement and success, while the Western values bring personal liberty, post-modernism,
also modernity, achievement and success. Together, the Chinese consumers 21st century
value system is a veritable melting pot; strong values of modernity, wealth and success are
dominant. Thus, the pursuit of modernity, wealth and success remains the key in explaining
luxury consumer behavior in Mainland China. From this explanation of the dominant set of
values within Chinese society, it is hardly surprising to discover that Mainland Chinas car sales
in 2009 averaged 13 million, even exceeding car sales in the U.S.. Additionally, sales for
German car manufacturer Mercedes Benz went up 77%.
Dengs Open reform policy in 1978 allowed for individuals to pursue wealth through various
means. Economic development transformed the social structure from a model that was
horizontally equal to that of vertical extension and growth. Now, after three decades of
inexistence from 1950 to 1980, social classes have reemerged. During the following three
decades from 1980s to 2010, social wealth increased by an average 10% of growth each year.
The Mainland Chinese consumer saw better financial opportunity and became increasingly
wealthy. Financial and career success and achievements naturally became a way for people to
distinguish themselves from others. It became de rigueur to openly display a persons individual
success, and luxury goods and designer brands effectively communicated status and wealth.
However, at the core of this newfound wealth and status was the honest pursuit of better living
conditions. Better living conditions meant for higher quality products and upscale brands.
Therefore, international luxury brands perfectly fulfilled the needs of Mainland Chinese
consumers from all angles cultural, social, and economic attributing for a more modern,
powerful, and self-confident approach to life.
At the core of this newfound wealth and status was the honest pursuit of better living
conditions. Better living conditions meant for higher quality products and upscale
brands.
In Mainland China, one may see a person carrying an authentic Louis Vuitton bag while riding a
crowded, public bus somewhere in the rural countryside. Luxury goods are consumed on a
mass level, and are not confined to a select few. The central cause for an increased
consumption of luxury products results from the countrys socialist value system. During the
transitional period from a pure planned system to a market-driven economy, consumers
inherently retained the idea of equality. Government authorities also try to maintain and
communicate that equality in Mainland China is crucial to national identity. Based on steady
economic development and a newfound consumer confidence towards the futures potential,
Mainland Chinese consumers believe that they are, in essence, the same as each other. Even if
they cannot afford a luxury brand item today, they will save up several months of savings to
eventually have it.
It is important to note that all Chinese luxury consumers do not aim to show off. There is a
homogenous identity and behavioral patterns that come with new wealth. However, only
focusing on this collective homogenous identity, and not pay attention on the differences would
cause a marketing plan to fail. The Mainland Chinese market is large and sophisticated enough
to use multi-criteria methods to understanding its various crossed aspects, such as
psychographic, geographic and demographic aspects. Psychographically, consumers are
different from socio-psychological and cultural attitudes towards luxury point of views. These
psychographic variables segment in the market into four groups known as luxury lovers, luxury
followers, luxury intellectuals and luxury laggards with three dimensions according to the
different psychographic aspects: collectivism-individualism, analytical-impulsive thinking,
conspicuousness-functionality for luxury goods. Geographically, the regional differences in
China (in terms of climates, cultural customs and languages) are varied; they are the equivalent
to the collective differences found throughout Europe. China can also be divided into four large
regions: North, South, East and West. Cities within a given region can be further classified into
tiered cities according to citys level of economic development. Demographically, the factors
classify naturally consumers into traditional groups. For the purposes of this paper, the research
sample used is meaningful for study as the income levels are controlled at ten times the national
average income. This ensures luxury consumption because of the samples disposable income
level and the easy affordability of luxury goods. Age is also controlled in the range of 25 to 45
years of age in order to be sure that the sample belongs to members of Mainland Chinas new
generation, avoiding the inclusion of members from the lost generation entirely. All sample
participants were educated at the university level and possessed an undergraduate degree.
The psychographic segmentation of Chinese luxury consumers as luxury lovers, luxury
followers, luxury intellectuals and luxury laggards cross with geographic factors to show the
regional distribution difference of the four groups in various parts of the Mainland Chinese
market. The results can be found in Table I and Table II.

Table I: Psychographic Segmentation of Chinese Luxury Consumers

Table II: Chinese Luxury Consumer Segmentation Geographical Distribution in China
The segmentation proves the heterogeneity of Chinese luxury consumers although
conspicuousness is dominant for luxury lovers and followers, representing 31.2% of the total
market in first tier cities. Still, conspicuousness is very visible and serves as motivation
especially among first movers for purchasing new products. First movers are often portrayed
by the media as opinion leaders, and are they are tactfully used to influence the market.
However, intellectuals and laggards focusing on functionality and individualism are still the main
dominant groups for luxury consumers in China even in first tier cities. Why are luxurys main
consumers still quiet and conservative about their attitude towards luxury goods?
After the initial introduction of international luxury brands in China, the curiosity of
Mainland Chinese consumers wore off as they began to seriously confront the
psychological discomfort associated with the absence of a Chinese luxury brand.
The conservative conspicuousness is coming from the cultural and psychological contradiction:
1) the admiration of ancient Chinas luxury lifestyle influences the luxury pursuit today.
Currently, luxury brands are widely available from many foreign countries, such as France, Italy,
and Switzerland. After the initial introduction of international luxury brands in China, the curiosity
of Mainland Chinese consumers wore off as they began to seriously confront the psychological
discomfort associated with the absence of a Chinese luxury brand. Why was there no Chinese
brand capable of carrying out the essence of luxury found in ancient Chinese culture? 2)
Chinese tradition encourages people to be benign and to not have an extravagant life.
Exercising frugality and discreetness are seen as the proper way for a person to behave in
society. This virtue of frugality and discreetness is also the socially accepted norm by the
Chinese socialist value system. Therefore, frugality and discreetness received two confirmations
from two value systems (tradition and socialist) in comparison to modernity, wealth and
achievement values, which were confirmed twice by socialist and western value systems.
As a result, the internal psychological values within the 21st century value system of Mainland
China are conflicted. This conflict is reflected in the attitudes and behaviors of its consumers,
especially in regard to the luxury market, and accounts for the following: an ambivalent attitude
towards luxury consumption and psychological dissonance after purchasing. An exception is gift
giving or special product categories.
The conflict of having a centralized power structure versus liberty and an openness of
the market creates individual wealth while limiting the expression of wealth and status.
Conservative conspicuousness can also be understood by the unique socialist system within
Mainland Chinas market-drive economy. The conflict of having a centralized power structure
versus liberty and an openness of the market creates individual wealth while limiting the
expression of wealth and status. Those consumers who are typically found in politics or a
government related environment are said to be luxury intellectuals. In this setting, wealth should
not be overtly expressed or shown off to others. Products that are discreetly designed, such as
ties, scarves, business suits, or handbags without logos are most popular. Alternatively, if an
individual outside of politics consumes luxury products, it is most likely that he or she is a luxury
lover or follower. (Please see Table III)

Table III: The Conservative Conspicuousness of Chinese Luxury Consumers
The potential for luxury industries to thrive in the Mainland Chinese market is high. With steady
economic development, more information on luxury goods readily available online and offline,
the increasing relevance of e-commerce, and a greater awareness for a higher quality of life,
consumerism will propel to the center of this dynamic market. As consumers get more savvy
and sophisticated, the Mainland Chinese market will, in due time, be much more difficult and
complicated to operate.

About the author
Pierre Xiao LU is Assistant Professor of Marketing at School of Management of Fudan
University in Shanghai. He specializes in luxury consumer behavior study, luxury brand
management and selective retailing. His theories about Chinese consumer formed the
fundamental understanding for international brands towards this market and largely adopted by
successful upscale brands. Before he joins Fudan University, he received his PhD in marketing
from ESSEC Paris where he is visiting professor of LVMH Chair and of its Asian campus in
Singapore. Lu is author of Elite China, Luxury Consumer Behavior in China and co-author of
Luxury China, Market Opportunities and Potentials. He can be reached at
xiaolu@fudan.edu.cn.
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